An inconvenient truth

  • “Momentum is a big embarrassment for market efficiency.” — Eugene Fama, professor of finance at the University of Chicago and Nobel Laureate in Economic Sciences, in a speech at the CFA Society Chicago conference on June 13. Fama’s Nobel Prize was awarded for his work advancing the Efficient Market Hypothesis (EMH), which states that it is impossible to beat the market because share prices always reflect all available information. Previously, he has called momentum, which is the engine behind SMI’s three most popular strategies (and which shouldn’t be as effective as it is if markets truly were efficient), “the premier market anomaly.” Read more

Pennsylvania Avenue is far from Wall Street

  • “The stock market is best understood not as a presidential poll but as a barometer of the nation’s current economic mood, and it remains buoyant now for reasons unconnected to the White House.” — Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, writing in the NY Times on 5/30/17 on why a widely anticipated “Trump slump” hasn’t materialized. Read more

Trouble ahead?

  • “Every boom in the U.S. economy is different, but over the past several decades, each has ended the same way. First you get full employment. Then you get a spike in the price of oil. And then there’s a recession.” —Bloomberg View columnist Conor Sen, writing on 6/14/17. He noted that the U.S. hit full employment nearly two years ago, and when that has happened in the past, it never took more than a few years for the price of oil to double. Read more
  • “As history demonstrates, conformity to the irrational can and often does persist beyond conceivable limits, yet incoherence of behavior is not sustainable indefinitely.” — Michael Lebowitz, founding partner of investment consultancy 720 Global, writing in Advisor Perspectives on 6/19/17. He argues the long bull market has numbed investors to the reality that it can’t last forever. Read more
  • “Tech ‘wreck?’ That’s a bit of a stretch in my opinion; but the financial media loves a good headline.” – Liz Ann Sonders, chief investment strategist at Charles Schwab, writing on 6/19/17. She thinks mid-June declines for so-called FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) will prove to be more of a pause than the start of a steeper sell-off in the tech sector. Read more

Caution comes with its own risks

  • “If you want to protect on the downside, you have to be willing to be wrong, early and often. There is no other way. You have to accept that the rain may never come.” — Charlie Bilello, director of research at Pension Partners, an investment advisor, writing on his company’s blog on 6/14/17 about the tradeoff that caution requires. Read more

The big picture

  • “Diversification is not about owning more stocks. That’s not a particularly useful kind of diversification if they all end up rising or falling together. Diversification is about owning assets or running strategies that are uncorrelated or minimally correlated to each other.” — Charles Sizemore, chief investment officer at Sizemore Capital Management, on the one piece of wisdom he would impart to all investors. Read other people’s answers on Abnormal Returns
  • “Though there has never been a better time to be an investor, it does not mean that there has never been an easier time to be an investor.” — Phil Huber, chief investment officer, Huber Financial Advisors, writing on his bps and pieces blog on 6/6/17. He said cost reductions, new investment products, and other advancements have given investors more advantages than ever, but investors continue to be their own worst enemies. Read more